For this weekends installment of The Part Time Investor I wanted to talk about news trading. If there in one app I check more than Yahoo Finance it is my Flipboard news feed, it consumes a bunch of my screentime on my iPhone. When reading articles about companies I am invested or interested in I have to keep my emotions in check. There is a natural emotional tendency to take action based on the news I just recieved.
This last week has been really exciting for news traders. First were reports of a pending bear market and POTUS’s unhappiness with the fed. Then the Chairman of the Federal Reserve, Jerome Powell, announced that interest rates are at or near neutral sending the market surging upward. Now, at the time of this writing, the G20 Summit is underway in Buenos Aires and the world is watching to see if the United States and China end their escalating trade war. Any action or inaction at this conference will surely impact the market.
I have traded once exclusively utilizing news trading. I had placed AMD on my watchlist in Robinhood based on an article I had read recently. About a day later I got an alert that AMD’s price was skyrocketing. Getting caught up in the news cycle I baught what I could with the funds I had in my account. I caught the back end of the upward momentum and about 48 hours later prices appeared to have leveled out. I sold out of my position at a nice profit.
As a buy and hold investor making money off of news trading is not something I think would be profitable over time. As a day trader I can see it as a solid mechanism to buy and sell in and out of postions quickly to turn a profit. It is important to process the news and determine if it will have any long term consequences to your investing strategy. If not, it is probably best to ride the news out.